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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1994
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-6841
SUN COMPANY, INC.
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(Exact name of registrant as specified in its charter)
PENNSYLVANIA 23-1743282
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(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
TEN PENN CENTER, 1801 MARKET STREET, PHILADELPHIA, PA 19103-1699
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(Address of principal executive offices)
(Zip Code)
(215) 977-3000
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(Registrant's telephone number, including area code)
NOT APPLICABLE
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(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO
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At September 30, 1994, 106,876,274 shares of common stock were outstanding.
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SUN COMPANY, INC.
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INDEX
Page No.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Income
for the Nine Months Ended September 30, 1994
and 1993 3
Condensed Consolidated Statements of Income
for the Three Months Ended September 30, 1994
and 1993 4
Condensed Consolidated Balance Sheets at
September 30, 1994 and December 31, 1993 5
Condensed Consolidated Statements of Cash
Flows for the Nine Months Ended September 30,
1994 and 1993 6
Notes to Condensed Consolidated Financial
Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 26
Item 6. Exhibits and Reports on Form 8-K 26
SIGNATURE 28
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PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Sun Company, Inc. and Subsidiaries
(Millions of Dollars Except Per Share Amounts)
- --------------------------------------------------------------------------
For the Nine Months
Ended September 30
-------------------
1994 1993
------ ------
(UNAUDITED)
REVENUES
Sales and other operating revenue (including consumer
excise taxes of $1,570 in 1994 and $1,371 in 1993) $6,973 $6,918
Gain on divestments (Note 3) 49 148
Interest income 11 14
Income (loss) from investments in operations
held for sale (Note 4) (4) --
Other income (Note 5) 17 47
------ ------
7,046 7,127
------ ------
COSTS AND EXPENSES
Cost of products sold and operating expenses 4,334 4,460
Selling, general and administrative expenses 512 465
Taxes, other than income taxes 1,673 1,482
Depreciation, depletion and amortization 267 262
Exploratory costs and leasehold impairment 16 16
Provision for write-down of assets and other
matters (Note 6) 39 23
Minority interest 24 28
Interest cost and debt expense 66 62
Interest capitalized (8) (6)
------ ------
6,923 6,792
------ ------
Income before provision for income taxes
and cumulative effect of change in
accounting principle 123 335
Provision for income taxes 29 116
------ ------
Income before cumulative effect of change
in accounting principle 94 219
Cumulative effect of change in accounting
principle (Note 7) (7) 5
------ ------
NET INCOME $ 87 $ 224
====== ======
Earnings per share of common stock:*
Income before cumulative effect of change in
accounting principle $ .88 $2.05
Cumulative effect of change in accounting principle (.07) .05
----- -----
Net income $ .81 $2.10
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Cash dividends paid per share of common stock $1.35 $1.35
===== ====
- ----------------
*Based on the weighted average number of shares outstanding (in thousands)
of 107,066 in 1994 and 106,497 in 1993.
(See Accompanying Notes)
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CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Sun Company, Inc. and Subsidiaries
(Millions of Dollars Except Per Share Amounts)
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For the Three Months
Ended September 30
--------------------
1994 1993
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(UNAUDITED)
REVENUES
Sales and other operating revenue (including consumer
excise taxes of $554 in 1994 and $482 in 1993) $2,699 $2,273
Gain on divestments (Note 3) 20 87
Interest income 4 5
Income from investments in operations
held for sale (Note 4) 2 --
Other income (Note 5) 1 19
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2,726 2,384
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COSTS AND EXPENSES
Cost of products sold and operating expenses 1,727 1,398
Selling, general and administrative expenses 181 165
Taxes, other than income taxes 592 510
Depreciation, depletion and amortization 89 91
Exploratory costs and leasehold impairment 5 4
Provision for write-down of assets and
other matters (Note 6) 39 23
Minority interest 11 14
Interest cost and debt expense 25 19
Interest capitalized (3) (1)
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2,666 2,223
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Income before provision for income taxes 60 161
Provision for income taxes 12 47
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NET INCOME $ 48 $ 114
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Net Income per share of common stock* $.45 $1.07
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Cash dividends paid per share of common stock $.45 $.45
==== ====
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*Based on the weighted average number of shares outstanding (in thousands)
of 106,958 in 1994 and 106,553 in 1993.
(See Accompanying Notes)
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CONDENSED CONSOLIDATED BALANCE SHEETS
Sun Company, Inc. and Subsidiaries
At At
September 30 December 31
1994 1993
(Millions of Dollars) (UNAUDITED)
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ASSETS
Current Assets
Cash and cash equivalents, at cost which
approximates market $ 142 $ 118
Accounts and notes receivable, net of allowances 721 572
Inventories:
Crude oil 265 140
Refined products 425 244
Materials, supplies and other 88 80
Deferred income taxes 109 123
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Total Current Assets 1,750 1,277
Investment in Coal Operations Held for Sale (Note 4) 57 113
Investment in Real Estate Operations Held
for Sale (Note 4) 129 134
Long-Term Receivables and Investments 213 217
Properties, Plants and Equipment 8,282 7,753
Less Accumulated Depreciation, Depletion
and Amortization 4,119 3,922
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Properties, Plants and Equipment, net 4,163 3,831
Deferred Charges and Other Assets 323 328
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Total Assets $6,635 $5,900
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 754 $ 641
Accrued liabilities 482 487
Short-term borrowings (Note 10) 430 110
Current portion of long-term debt 99 26
Taxes payable 250 241
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Total Current Liabilities 2,015 1,505
Long-Term Debt (Note 10) 984 726
Retirement Benefit Liabilities 544 523
Deferred Income Taxes 342 369
Other Deferred Credits and Liabilities 446 421
Commitments and Contingent Liabilities (Note 8)
Minority Interest 379 372
Stockholders' Equity (Note 9) 1,925 1,984
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Total Liabilities and Stockholders' Equity $6,635 $5,900
====== ======
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Sun follows the successful efforts method of accounting for oil and gas
exploration and production operations.
(See Accompanying Notes)
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Sun Company, Inc. and Subsidiaries
(Millions of Dollars)
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For the Nine Months
Ended September 30
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1994 1993
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(UNAUDITED)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 87 $ 224
Adjustments to reconcile net income to net
cash provided by operating activities:
Cumulative effect of change in accounting
principle 7 (5)
Provision for write-down of assets
and other matters 39 23
Gain on divestments (49) (148)
Depreciation, depletion and amortization 267 262
Dry hole costs and leasehold impairment 10 10
Deferred income taxes (14) 5
Changes in working capital pertaining to
operating activities:
Accounts and notes receivable (150) 78
Inventories (206) (21)
Accounts payable and accrued liabilities 52 (356)
Taxes payable 16 55
Other 26 41
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Net cash provided by operating activities 85 168
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (518) (372)
Acquisition of Chevron assets (Note 2) (151) --
Cash provided by coal operations held for sale 20 138
Cash provided by (used in) real estate operations
held for sale 7 (16)
Proceeds from divestments 65 317
Other 2 (25)
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Net cash provided by (used in) investing activities (575) 42
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from (repayments of)
short-term borrowings (Note 10) 320 (130)
Proceeds from issuance of long-term debt (Note 10) 444 34
Repayments of long-term debt (112) (46)
Cash dividend payments (144) (144)
Other 6 5
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Net cash provided by (used in) financing activities 514 (281)
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Net increase (decrease) in cash and cash equivalents 24 (71)
Cash and cash equivalents at beginning of period 118 179
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Cash and cash equivalents at end of period $ 142 $ 108
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(See Accompanying Notes)<PAGE>
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
1. General.
The accompanying condensed consolidated financial statements are
presented in accordance with the requirements of Form 10-Q and do not
include all disclosures normally required by generally accepted
accounting principles or those normally made in Form 10-K. In
management's opinion all adjustments necessary for a fair presentation
of the results of operations, financial position and cash flows for
the periods shown have been made. All such adjustments are of a
normal recurring nature except for the cumulative effect of change in
accounting principle (Note 7). Results for the three and nine months
ended September 30, 1994 are not necessarily indicative of results for
the full year 1994.
2. Acquisition of Chevron Assets.
On August 4, 1994, Sun concluded the purchase from Chevron U.S.A. Inc.
("Chevron") of a 177,000 barrel-per-day refinery and related inventory
located in Philadelphia, PA. As part of the transaction, Sun assumed
certain liabilities. The acquisition has been accounted for as a
purchase and, accordingly, the results of operations of the refinery
have been included in the condensed consolidated statement of income
since August 4, 1994. The purchase price of $151 million has been
allocated to the assets acquired and liabilities assumed on the basis
of their relative fair market values as set forth below (in millions
of dollars):
ASSETS
Inventories $108
Properties, plants and equipment 136
LIABILITIES
Accrued liabilities (10)
Retirement benefit liabilities (22)
Other deferred credits and liabilities (61)
----
Net decrease in cash and cash equivalents $151
====
In connection with this transaction, on October 26, 1994, Sun also
completed the acquisition of Chevron's interest in the Woodbury
Pipeline and the Harbor Pipeline, which connect the refinery to the
New York harbor, for $13 million.
The unaudited pro forma sales and other operating revenue (excluding
consumer excise taxes) of Sun for the nine months ended September 30,
1994 and 1993, as if the acquisition of these assets had occurred on
January 1, 1993, were $6,118 million and $6,653 million, respectively.
The unaudited pro forma net income and net income per share of common
stock of Sun for the nine months ended September 30, 1994 and 1993
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were $99 million ($.92 per share of common stock) and $250 million
($2.35 per share of common stock), respectively. The pro forma
information does not purport to be indicative of the results that
actually would have been obtained if the combined operations had been
conducted during the periods presented and is not intended to be a
projection of future results.
Actual sales and other operating revenue (excluding consumer excise
taxes) and net income from the refinery for the period from August 4,
1994 through September 30, 1994 amounted to $242 and $5 million,
respectively.
3. Gain on Divestments.
During the third quarter of 1994, Sun completed an acquisition of a 45
percent interest in Block 3/8A ("Ninian and Columba fields") located
in the U.K. North Sea for $59 million plus Sun's 20 percent interest
in Block 16/12a also located in the U.K. North Sea. The disposition
of Block 16/12a increased Sun's net income by $15 million after-tax or
$.14 per share of common stock.
In June 1994, Sun sold its remaining interest in an oil field located
in Colombia. In connection with this sale, Sun recognized a $20
million gain, which increased net income by $13 million or $.12 per
share of common stock during the second quarter of 1994.
In May 1993, Sun sold 6.8 million shares of Suncor common stock in a
secondary offering in Canada, Europe and by private placement in the
United States. This sale reduced Sun's ownership interest in Suncor
from approximately 68 percent to 55 percent. In connection with this
sale, Sun recognized a $30 million gain, which increased results of
operations by $19 million after tax or $.18 per share of common stock
during the second quarter of 1993. Pretax cash proceeds from the
offering after underwriting and other fees and U.S. dollar translation
totaled $139 million.
During the second quarter of 1993, Sun also completed the sales of
certain oil and gas properties located in Dubai and Canada which
previously were identified for divestment as part of the Company's
1992 restructuring plan. In connection with these sales, Sun
recognized a $19 million gain, which increased results of operations
by $9 million after tax or $.08 per share of common stock. During the
third quarter of 1993, Sun completed the sales of certain exploration
properties in the U.K. North Sea and additional crude oil producing
properties in Canada. In connection with these sales, Sun recognized
an $86 million gain, which increased results of operations by $65
million after tax or $.61 per share of common stock.
4. Investments in Operations Held for Sale.
In January 1993, Sun decided to sell the assets of the Company's coal
and cokemaking operations comprised of Sun Coal Company and Elk River
Resources, Inc. and its subsidiaries (collectively, "Sun Coal"). In
connection with this decision, Sun sold its western U.S. coal
operations during 1993 and certain of its eastern U.S. coal operations
during 1994. Sun continues to actively pursue the sale of its
remaining eastern U.S. coal and cokemaking operations.
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In October 1991, the Company's Board of Directors approved a plan to
dispose of the Company's investment in Radnor Corporation ("Radnor"),
its wholly owned real estate development subsidiary. In connection
with this plan, the Company is actively pursuing a program of
controlled disposition.
Prior to the fourth quarter of 1993, coal and real estate operations
had been classified as discontinued operations in the consolidated
financial statements. In accordance therewith, results of operations
of Sun's coal and real estate businesses subsequent to their
measurement dates of December 31, 1992 and September 30, 1991,
respectively, had been excluded from the consolidated statements of
income. In November 1993, the Securities and Exchange Commission
issued Staff Accounting Bulletin No. 93 which requires discontinued
operations that have not been divested within one year of their
measurement dates to be accounted for prospectively as investments
held for sale. As a result, pretax income (loss) from Sun's coal and
real estate operations, which totalled $(6) and $2 million,
respectively, during the first nine months of 1994, has been included
as a single amount in income from continuing operations. On an
after-tax basis, income from Sun's coal and real estate operations
totalled $8 and $2 million, respectively, during the first nine months
of 1994.
The net assets and liabilities relating to the coal and real estate
operations held for sale have been segregated on the condensed
consolidated balance sheets to separately identify them as investments
in operations held for sale. Such amounts are summarized as follows:
September 30 December 31
1994 1993
------------ -----------
(Millions of Dollars)
Coal Operations
Accounts receivable $ 17 $ 18
Inventories 15 27
Properties, plants and equipment 142 175
Other assets 17 32
Accounts payable and accrued liabilities (43) (40)
Retirement benefit liabilities (41) (44)
Other liabilities (50) (55)
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Investment in coal operations held for sale $ 57 $ 113
===== =====
Real Estate Operations
Inventories $ 156 $ 158
Properties, plants and equipment 212 374
Other assets 24 49
Nonrecourse financing -- (90)
Recourse debt (226) (324)
Other liabilities (37) (33)
----- -----
Investment in real estate operations
held for sale $ 129 $ 134
===== =====
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In June 1994, Radnor divested three Pennsylvania office projects for
$161 million and two Florida shopping centers for $25 million. The
net proceeds were used principally to repay Radnor debt.
As part of a restructuring of Radnor's recourse debt obligations
during 1992, the Company, through its wholly owned subsidiary, The
Claymont Investment Company, has provided Radnor with a $100 million
credit facility. As of September 30, 1994, there was $14 million
borrowed against this facility. Amounts borrowed by Radnor under this
facility are not collateralized by any of its assets.
Radnor's recourse debt obligations require that its stockholder's
equity, which totalled $110 million at September 30, 1994, equal at
least $100 million. In the event that Radnor's stockholder's equity
declines below this amount, the Company would have the option to make
a capital contribution to Radnor to avoid default by Radnor on these
obligations or to advance the remaining amount available under the
$100 million credit facility.
5. Other Income.
In September 1993, Suncor recognized a $6 million gain from the
settlement of an insurance claim associated with a partial freeze-up
at the oil sands plant in late 1992. This settlement increased net
income and net income per share of common stock by $3 million and
$.03, respectively, during the third quarter of 1993.
In June 1993, Suncor settled all claims arising from a 1987 fire at
its oil sands facility in Fort McMurray, Alberta. Sun recognized a
$17 million gain in connection with the settlement, which increased
net income and net income per share of common stock by $7 million and
$.07, respectively, during the second quarter of 1993.
6. Write-downs of Assets and Other Matters.
During the third quarter of 1994, Sun recorded a provision primarily
attributable to a write-down to estimated net realizable value of its
investment in coal operations held for sale.
During the third quarter of 1993, Sun recorded a provision associated
with the restructuring of its Canadian refining and marketing
operations and established additional loss accruals related to the
recoverability of its remaining leasing and secured lending portfolio.
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The following is a summary of the provisions for write-down of assets
and other matters (in millions of dollars except per share amounts):
After-Tax
Losses Per
Income Share of
Tax After-Tax Common
Provisions Benefits Losses Stock
---------- -------- ------ ---------
1994
Coal operations held
for sale $36 $16 $20 $.19
Other 3 1 2 .02
--- --- --- ----
$39 $17 $22 $.21
=== === === ====
1993
Canadian operations $15* $ 8 $ 7 $.06
Leasing operations 8 3 5 .05
--- --- --- ----
$23 $11 $12 $.11
=== === === ====
----------------
*Net of minority interest share of provision for write-down of assets
and other matters.
7. Changes in Accounting Principles.
Postemployment Benefits
Effective January 1, 1994, Sun adopted the provisions of Statement of
Financial Accounting Standards No. 112 "Employers' Accounting for
Postemployment Benefits" ("SFAS No. 112"). It required companies to
recognize the obligation to provide benefits to their former or
inactive employees after employment but before retirement. The
cumulative effect of this accounting change for years prior to 1994,
which is shown separately in the condensed consolidated statement of
income, decreased net income for the nine months ended September 30,
1994 by $7 million (after related income tax benefit of $4 million),
or $.07 per share of common stock. Excluding the cumulative effect,
this change did not have a significant impact on Sun's net income for
the nine months ended September 30, 1994.
Income Taxes
Effective January 1, 1993, Sun adopted the provisions of Statement of
Financial Accounting Standards No. 109 "Accounting for Income Taxes"
("SFAS No. 109") which changed the method of computing deferred income
taxes from a deferred to a liability approach. Under the liability
method, deferred income taxes are determined based on temporary
differences between the financial statement and tax bases of assets
and liabilities, using enacted tax rates in effect during the years in
which the differences are expected to reverse, and on available tax
credits and carryforwards. The cumulative effect of this accounting
change for years prior to 1993, which is shown separately in the
condensed consolidated statement of income, increased net income for
the nine months ended September 30, 1993 by $5 million, or $.05 per
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share of common stock. Excluding the cumulative effect, this change
increased net income for the nine months ended September 30, 1993 by
$38 million, or $.36 per share of common stock, primarily due to lower
U.S. income tax expense on foreign earnings, including a $19 million
reduction in deferred income tax expense attributable to the 1993
third-quarter sale of certain exploration properties in the U.K. North
Sea (Note 3). Since the deferred income tax assets and liabilities
will have to be adjusted for any enacted change in tax rate, Sun's net
income may be subject to increased volatility.
8. Commitments and Contingent Liabilities.
In 1992, a wholly owned subsidiary of the Company became a one-third
partner in Belvieu Environmental Fuels ("BEF"), a joint venture formed
for the purpose of constructing, owning and operating a $225 million
methyl tertiary butyl ether ("MTBE") production facility in Mont
Belvieu, Texas. As of September 30, 1994, BEF had borrowed $176
million, the total amount available under a construction loan
facility, of which the Company guarantees one-third or $59 million.
The plant has a designed capacity of 12,600 barrels daily of MTBE.
The construction of the facility is essentially completed and
sustained start-up tests are underway. After completion of these
tests in the first half of 1995, the construction loan will be
converted into a five-year, nonrecourse term loan with a first
priority lien on all project assets.
In order to obtain a secure supply of oxygenates for the manufacture
of reformulated fuels, Sun has entered into a 10-year off-take
agreement with BEF. Pursuant to this agreement, Sun will purchase all
of the MTBE production from the plant. The minimum per unit price to
be paid for the first 12,600 barrels daily of MTBE production while
the nonrecourse term loan is outstanding will be equal to BEF's annual
raw material and operating costs and debt service payments divided by
the plant's annual designed capacity. Notwithstanding this minimum
price, Sun has agreed to pay BEF a price during the first three years
of the off-take agreement which approximates prices included in
current MTBE long-term sales agreements in the marketplace. This
price is expected to exceed the minimum price required by the loan
agreement. Sun will negotiate a new pricing arrangement with BEF for
the remaining seven years the off-take agreement is in effect which
will be based upon the expected market conditions existing at such
time.
Sun is subject to federal, state, local and foreign laws regulating
the discharge of materials into, or otherwise relating to the
protection of, the environment. These laws result in loss
contingencies for Sun's remediation at the Company's refineries,
service stations, terminals, pipelines and truck transportation
facilities as well as third-party or formerly owned sites at which
contaminants generated by Sun may be located.
The Comprehensive Environmental Response Compensation and Liability
Act ("CERCLA") and the Solid Waste Disposal Act as amended by the
Resource Conservation and Recovery Act ("RCRA"), and related state
laws subject the Company to the potential obligation to remove or
mitigate the environmental effects of the disposal or release of
certain pollutants at various sites. Under CERCLA, Sun is subject to
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potential joint and several liability for the costs of remediation at
sites at which it has been identified as a "potentially responsible
party" ("PRP"). As of September 30, 1994, Sun had been named as a PRP
at 45 sites identified or potentially identifiable as "Superfund"
sites under CERCLA. Sun has reviewed the nature and extent of its
involvement at each site and other relevant circumstances and, based
upon the other parties involved or Sun's negligible participation
therein, believes that its potential liability associated with such
sites will not be significant. Under RCRA and related state laws,
corrective remedial action has been initiated at some of Sun's
facilities and will be required to be undertaken by the Company at
various of its other facilities. The cost of such remedial actions
could be significant but is expected to be incurred over an extended
period of time.
Sun's policy is to accrue environmental remediation costs for work at
identified sites where an assessment has indicated that cleanup costs
are probable and reasonably estimable. Such accruals are based on
currently available facts, estimated timing of remedial actions and
related inflation assumptions, existing technology and presently
enacted laws and regulations. Sun's international production and
Canadian operations are subject to less demanding environmental
regulatory requirements than its U.S. operations and these less
stringent requirements are considered in determining the accruals for
those locations. Sun's accruals reflect the Company's philosophy of
aggressively managing remediation costs to ensure the most
cost-effective method of protecting the health, safety and environment
of affected communities. The accrued liability for environmental
remediation totalled $260 million at September 30, 1994 and $259
million at December 31, 1993. Sun also accrues estimated
dismantlement, restoration, reclamation and abandonment costs at its
oil and gas exploration and production and oil sands mining operations
through a charge against income primarily on a units of production
basis. The accrued liability for these activities, which are
conducted primarily by Suncor, Sun's 55 percent owned subsidiary,
totalled $127 million at September 30, 1994 and $119 million at
December 31, 1993. The accruals for environmental remediation and
reclamation activities are included primarily in other deferred
credits and liabilities in the condensed consolidated balance sheets.
Pretax charges against income for environmental remediation and
reclamation totalled $15 and $32 million for the nine months ended
September 30, 1994 and 1993, respectively. Claims for recovery of
environmental liabilities that are probable of realization totalled
$11 million at September 30, 1994 and are included in deferred charges
and other assets in the condensed consolidated balance sheet.
Total future cost for environmental remediation activities will depend
upon, among other things, the identification of additional sites, the
determination of the extent of contamination of each site, the timing
and nature of required remedial actions, the technology available and
needed to meet the various existing requirements, the nature and
extent of future environmental laws, inflation rates and the
determination of Sun's liability at multi-party sites, if any, in
light of the number, participation levels and financial viability of
other parties.
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Many other legal and administrative proceedings are pending against
Sun. The ultimate outcome of these proceedings and the environmental
matters discussed above cannot be ascertained at this time; however,
it is reasonably possible that some of them could be resolved
unfavorably to Sun.
Management believes that any costs attributable to the matters
discussed above are expected to be incurred over an extended period of
time and to be funded from Sun's net cash flow from operating
activities. Although the ultimate impact of these matters could have
a significant impact on results of operations or cash flow for any one
quarter or year, management of Sun believes that any liabilities which
may arise pertaining to such matters would not be material in relation
to the consolidated financial position of Sun at September 30, 1994.
Furthermore, management of Sun believes that the overall costs for
environmental activities will not have a material impact, over an
extended period of time, on Sun's cash flow or liquidity.
9. Stockholders' Equity.
At At
September 30 December 31
1994 1993
------------ -----------
(Millions of Dollars)
Common stock, par value $1 per share $ 129 $ 129
Capital in excess of par value 1,308 1,303
Cumulative foreign currency translation
adjustment (70) (62)
Earnings employed in the business 1,579 1,636
------ ------
2,946 3,006
Less common stock held in treasury,
at cost 1,021 1,022
------ ------
Total $1,925 $1,984
====== ======
10. Subsequent Event.
On November 1, 1994, the Company issued $150 million of 8-1/8 percent
5-year notes and $100 million of 9 percent 30-year debentures. The
proceeds from these borrowings will be used to repay short-term
borrowings as they mature. Accordingly, $250 million of short-term
borrowings was classified as long-term debt at September 30, 1994.
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS - NINE MONTHS
Earnings Profile of Sun Businesses (after tax)
- ----------------------------------------------
Nine Months Ended
September 30
-----------------
1994 1993 Variance
---- ---- --------
(Millions of Dollars)
Fuels:
Wholesale fuels $(56) $(34) $(22)
Branded marketing 38 61 (23)
Lubricants:
Lubes 50 42 8
Related fuels (25) (30) 5
Chemicals 9 12 (3)
Logistics 35 34 1
International production 38 55 (17)
Canada (Suncor):*
Exploration and production 4 4 --
Oil sands 23 25 (2)
Refining and marketing 7 7 --
Corporate expenses** (4) (5) 1
Net financing expenses (3) (2) (1)
---- ---- ----
Total Canada (Suncor) 27 29 (2)
Corporate:
Corporate expenses (16) (12) (4)
Net financing expenses (22) (19) (3)
Income from operations held
for sale:***
Coal 8 -- 8
Real estate 2 -- 2
---- ---- ----
88 138 (50)
Gain on sale of Suncor stock -- 19 (19)
Gain on divestment of exploration
and production properties 28 74 (46)
Provision for write-down of assets
and other matters (22) (12) (10)
Cumulative effect of change in
accounting principle+ (7) 5 (12)
---- ---- ----
Consolidated net income $ 87 $224 $(137)
==== ==== ====
- ----------------
*Sun reduced its ownership interest in Suncor from approximately
68 percent to 55 percent in May 1993.
**Includes consolidation adjustments.
***Effective in the fourth quarter of 1993, coal and real estate operations
are accounted for as investments held for sale. During the first nine
months of 1993, as discontinued operations, earnings from these
businesses were excluded from Sun's consolidated results of operations.
+Consists of the impact of the cumulative effect of a change in the
method of accounting for postemployment benefits in 1994 and a change
in the method of accounting for income taxes in 1993.<PAGE>
<PAGE> 16
Analysis of Earnings Profile of Sun Businesses
- ----------------------------------------------
In the nine-month period ended September 30, 1994, Sun earned $87 million,
or $.81 per share of common stock, compared with earnings of $224 million,
or $2.10 per share for the first nine months of 1993. Excluding the
special items shown separately in the Earnings Profile of Sun Businesses,
Sun earned $88 million during the first nine months of 1994 compared to
$138 million during the first nine months of 1993.
Fuels -- Results from Sun's domestic Fuels business, comprised primarily of
the manufacturing and marketing of petroleum products in the northeastern
U.S., declined from earnings of $27 million in the first nine months of
1993 to a loss of $18 million in the first nine months of 1994. Losses
from Sun's northeastern U.S. Wholesale Fuels operations increased from $34
million in the first nine months of 1993 to $56 million in the first nine
months of 1994. Income from Branded Marketing operations decreased from
$61 million in the year-ago nine month period to $38 million in the first
nine months of 1994.
On August 4, 1994, the Company completed the acquisition of a 177,000
barrel-per-day refinery and related inventory in Philadelphia ("Girard
Point") from Chevron U.S.A. Inc. ("Chevron"). (See Note 2 to the condensed
consolidated financial statements.) This refinery, which manufactures
primarily gasoline, distillates and petrochemicals for distribution to
wholesale and industrial customers, contributed $1 million in earnings to
Wholesale Fuels results in the 1994 third quarter. (See also Chemicals
below).
Excluding activity from the Girard Point refinery, Wholesale Fuels results
declined $23 million primarily due to higher refinery operating expenses
($12 million) caused largely by severe winter weather conditions in the
northeastern United States during the first quarter of 1994, lower sales
volumes ($6 million) and lower average wholesale fuels product margins ($9
million). Partially offsetting this decrease was a $5 million after-tax
gain recognized in connection with the settlement of various inventory
hedge contracts.
In Branded Marketing, the $23 million decline was caused largely by higher
operating and administrative expenses ($15 million), due in part to severe
weather conditions in the 1994 first quarter, and to increased expenses
related to the ongoing conversion of the Atlantic brand to Sunoco and the
upgrading of the Sunoco image. A three percent decline in branded gasoline
sales volumes also contributed to the decrease in Branded Marketing
earnings. The volume decline was caused primarily by the elimination of
some marginal distributor accounts, Sun's 1993 withdrawal from areas
supplied by the Tulsa Refinery and the severe wintertime driving conditions
which reduced gasoline sales.
Lubricants -- Results from Sun's Lubricants business, comprised of the
manufacturing, packaging and marketing of lubricants and specialty oil
products as well as the related manufacturing and wholesale marketing of
fuels produced at Sun's Tulsa and Puerto Rico refineries, increased $13
million over the first nine months of 1993. Income from sales of lubricant
products was $50 million in the current nine-month period compared with $42
million in the first nine months of 1993. The favorable impact of 16
percent higher lubricants sales volumes ($24 million) was partially offset
<PAGE>
<PAGE> 17
by lower average margins ($11 million), particularly for base oils, and
higher operating expenses ($6 million) resulting primarily from increased
refinery production levels. Losses from Related Fuels operations were $25
million during the first nine months of 1994, representing a $5 million
improvement from the $30 million loss in the year-ago period. The
improvement was due to higher margins on wholesale fuels products ($6
million) and higher sales volumes ($4 million), partially offset by higher
operating expenses ($5 million) resulting primarily from increased refinery
production levels.
Chemicals -- Income from Sun's domestic Chemicals business was $9 million
in the first nine months of 1994 versus $12 million in the prior year
period. The $3 million decrease in Chemicals results was due to lower
sales volumes ($8 million) and higher operating expenses ($6 million)
during the first nine months of 1994. Production curtailments at the
Company's northeastern refineries during the first half of 1994 were
largely responsible for the decline in sales volumes. Partially offsetting
these negative factors were higher margins ($7 million) and a $4 million
income contribution from the sale of petrochemicals produced at the Girard
Point refinery.
Logistics -- Logistics (pipeline transportation and petroleum terminalling
operations) income was $35 million in the first nine months of 1994
compared to $34 million in the year-ago period. The $1 million increase
was due principally to improved operating performance.
International Production -- International Production earnings were $38
million in the first nine months of 1994 versus $55 million in the first
nine months of 1993. The $17 million decline was due largely to lower
crude oil prices ($9 million) and natural gas volumes ($5 million) and an
increase in after-tax foreign exchange translation losses ($5 million).
Partially offsetting these negative factors were a $2 million after-tax
gain recognized on the redetermination of the Pickerill field in the U.K.
North Sea and $2 million of after-tax income attributable to the
acquisition of a 45 percent interest in Block 3/8A (Ninian and Columba
fields) finalized in the 1994 third quarter. The favorable impact of
higher North Sea crude oil production volumes, resulting in part from the
Block 3/8A acquisition, was essentially offset by higher depreciation and
cost and operating expenses.
The average price received for Sun's international crude oil production was
$15.50 per barrel in the first nine months of 1994 compared to $17.16 per
barrel for the first nine months of 1993. Sun's average net production of
crude oil was 26.7 thousand barrels daily during the first nine months of
1994 compared to average net production of 27.0 thousand barrels daily for
the first nine months of 1993. The production decline is the result of the
absence of volumes from properties located in Dubai which were sold in
April 1993. Excluding the Dubai volumes, crude production increased 25
percent from the prior year first nine months due to improved operations,
increased ownership interests in the Balmoral and Stirling fields in the
U.K. North Sea and the added production from the Ninian field acquired in
the 1994 third quarter.
The average price received for Sun's international natural gas production
was $2.95 per thousand cubic feet for the current nine-month period
compared to $2.97 per thousand cubic feet in the first nine months of 1993.
Sun's average net production of natural gas was 46 million cubic feet daily
<PAGE>
<PAGE> 18
in the first nine months of 1994 compared to 55 million cubic feet daily in
the 1993 period. The production decline was largely due to maintenance
activities in the Thames and Hewett fields in the U.K. North Sea during
1994.
Canada (Suncor) -- Canadian exploration and production results were flat
versus the year-ago nine-month period as lower operating and administrative
expenses ($1 million) and higher natural gas prices ($2 million) were
offset by lower crude oil prices ($1 million) and higher income tax expense
($2 million). Oil sands results decreased $2 million due to the absence of
a $7 million after-tax gain from an insurance settlement recorded in the
1993 second quarter. Operationally, the favorable impact of higher
synthetic crude oil production volumes ($14 million) was partially offset
by a 7-percent decline in synthetic crude oil prices to $15.96 per barrel
($6 million). Synthetic crude oil production volumes increased 18 percent
from 58.5 thousand barrels daily during the 1993 first nine months to 69.2
thousand barrels daily during the first nine months of 1994. The increase
in production was due, in part, to modifications made to the oil sands
plant's upgrader in 1993 and to a planned maintenance shutdown in April
1993, resulting in the stoppage of production until late May 1993.
Canadian refining and marketing income was flat versus the year-ago nine
month period as higher refined product volumes and margins were offset by
higher administrative and tax expenses.
Corporate -- Corporate expenses increased $4 million in part due to higher
administrative expenses. Net financing expenses were up $3 million versus
the year-ago period due to the absence of a $3 million after-tax gain on
the sale of an equity investment recognized in the first quarter of 1993.
Income from Operations Held for Sale -- For a discussion of Sun's coal and
real estate operations held for sale, see Note 4 to the condensed
consolidated financial statements.
Gain on Sale of Suncor Stock -- In the second quarter of 1993, Sun
recognized a $19 million after-tax gain, or $.18 per share of common stock,
on the sale of 6.8 million shares of Suncor common stock. This sale
reduced Sun's ownership interest in Suncor from approximately 68 percent to
55 percent.
Gain on Divestment of Exploration and Production Properties -- During the
first nine months of 1994, Sun disposed of its interest in a North Sea
exploration block and also sold its remaining interest in a Colombian oil
field. An after-tax gain of $28 million, or $.26 per share of common
stock, was recognized in connection with these sales. During the prior
year nine-month period, Sun disposed of certain oil and gas producing
properties located in Dubai and Canada and certain exploration properties
located in the U.K. North Sea which previously were identified for
divestment as part of the Company's 1992 restructuring plan. An after-tax
gain of $74 million, or $.69 per share of common stock, was recognized in
connection with these sales.
Provision for Write-down of Assets and Other Matters -- During the third
quarter of 1994, Sun recorded a $22 million after-tax charge primarily
attributable to a write-down to estimated net realizable value of its
investment in coal operations held for sale. During the third quarter of
1993, Sun recorded a $12 million after-tax provision which included a $7
<PAGE>
<PAGE> 19
million after-tax charge associated with the restructuring of Suncor's
refining and marketing business and a $5 million after-tax loss accrual
related to the recoverability of the Company's remaining leasing and
secured lending portfolio.
Cumulative Effect of Change in Accounting Principle -- For information
concerning changes in accounting principles, see Note 7 to the condensed
consolidated financial statements.
Analysis of Consolidated Statements of Income
- ---------------------------------------------
Sales and other operating revenue increased $55 million, or 1 percent,
principally due to higher refined product sales volumes ($305 million) and
an increase in consumer excise taxes ($199 million), partially offset by
lower refined product sales prices ($286 million) and lower revenues from
resales of purchased oil and refined products ($145 million). The $99
million decrease in gain on divestments is primarily due to the absence of
pretax gains recognized in 1993 on the sales of Suncor stock ($30 million),
oil and gas properties located in Dubai ($11 million) and Canada ($14
million), and certain exploration blocks in the U.K. North Sea ($80
million), partially offset by a $15 million pretax gain on the sale of
Sun's interest in Block 16/12a in the U.K. North Sea recognized in the
third quarter of 1994 and a $20 million pretax gain on the sale of Sun's
remaining interest in a Colombian oil field recognized during the second
quarter of 1994. Other income decreased $30 million primarily as a result
of the absence of $23 million of pretax gains from insurance and litigation
settlements recorded by Suncor in 1993.
Cost of products sold and operating expenses decreased $126 million, or 3
percent, primarily due to lower resales of purchased oil and refined
products ($147 million) and lower domestic crude oil and refined product
acquisition costs ($20 million), partially offset by higher refinery
operating expenses ($54 million). The increase in refinery operating
expenses was primarily due to the severe winter weather conditions in the
northeastern United States during the first quarter of 1994 and to
operating expenses attributable to the Girard Point refinery acquired on
August 4, 1994. Selling, general and administrative expenses increased $47
million, or 10 percent, primarily due to higher expenses in Sun's domestic
refining and marketing operations ($37 million). This increase was due in
part to higher distribution and operating expenses caused by the severe
winter weather in the northeastern United States during 1994 and to
increased expenses associated with the conversion of the Atlantic brand to
Sunoco and the upgrading of the Sunoco image. Taxes, other than income
taxes increased $191 million, or 13 percent, due to higher consumer excise
taxes ($199 million). Depreciation, depletion and amortization increased
$5 million, or 2 percent, primarily as a result of increased crude oil
production in the U.K. North Sea. For a discussion of the provision for
write-down of assets and other matters recorded in 1994 and 1993, see Note
6 to the condensed consolidated financial statements. Interest cost and
debt expense increased $4 million, or 6 percent, due to higher average
short-term borrowings, partially offset by a lower borrowing position at
Helios Capital Corporation, Sun's leasing subsidiary. For a discussion of
the cumulative effect of change in accounting principle, see Note 7 to the
condensed consolidated financial statements.
<PAGE>
<PAGE> 20
RESULTS OF OPERATIONS - THREE MONTHS
Earnings Profile of Sun Businesses (after tax)
- ----------------------------------------------
Three Months Ended
September 30
------------------
1994 1993 Variance
---- ---- --------
(Millions of Dollars)
Fuels:
Wholesale fuels $(23) $ (3) $(20)
Branded marketing 25 29 (4)
Lubricants:
Lubes 19 9 10
Related fuels (10) (9) (1)
Chemicals 10 3 7
Logistics 12 10 2
International production 16 19 (3)
Canada (Suncor):
Exploration and production 1 2 (1)
Oil sands 14 13 1
Refining and marketing 3 4 (1)
Corporate expenses* (2) (2) --
Net financing expenses (1) (1) --
---- ---- ----
Total Canada (Suncor) 15 16 (1)
Corporate:
Corporate expenses (7) (4) (3)
Net financing expenses (8) (9) 1
Income from operations held
for sale:**
Coal 6 -- 6
Real estate -- -- --
---- ---- ----
55 61 (6)
Gain on divestment of exploration
and production properties 15 65 (50)
Provision for write-down of assets
and other matters (22) (12) (10)
---- ---- ----
Consolidated net income $ 48 $114 $(66)
==== ==== ====
- ----------------
*Includes consolidation adjustments.
**Effective in the fourth quarter of 1993, coal and real estate operations
are accounted for as investments held for sale. During the first nine
months of 1993, as discontinued operations, earnings from these
businesses were excluded from Sun's consolidated results of operations.
<PAGE>
<PAGE> 21
Analysis of Earnings Profile of Sun Businesses
- ----------------------------------------------
In the three-month period ended September 30, 1994, Sun earned $48 million,
or $.45 per share of common stock, compared with earnings of $114 million,
or $1.07 per share for the third quarter of 1993. Excluding the special
items shown separately in the Earnings Profile of Sun Businesses, Sun
earned $55 million during the third quarter of 1994 compared to income of
$61 million during the third quarter of 1993.
Fuels -- Sun's domestic Fuels business recorded income of $2 million in the
third quarter of 1994 versus income of $26 million in the third quarter of
1993. Losses from Wholesale Fuels operations were $23 million in the
current quarter compared with a loss of $3 million in the third quarter of
1993. Income from Branded Marketing operations decreased from $29 million
in the year-ago quarter to $25 million in the third quarter of 1994.
Wholesale Fuels results for the current quarter include $1 million of
after-tax income from operations at Sun's Girard Point refinery acquired
from Chevron on August 4, 1994 (see Chemicals below and Note 2 to the
condensed consolidated financial statements).
Excluding results of operations from the Girard Point refinery, Wholesale
Fuels results declined due to lower margins ($20 million) across most
products, particularly wholesale gasoline, middle distillates and asphalt,
and lower sales volumes ($3 million). Partially offsetting this decrease
was a $5 million after-tax gain recognized in connection with the
settlement of various inventory hedge contracts.
In Branded Marketing, the $4 million decline was caused largely by higher
selling, general and administrative expenses ($5 million). Branded
gasoline sales volumes declined four percent versus the year-ago quarter
due primarily to Sun's strategy of eliminating marginal distributor
accounts. The impact of these lower volumes on net income was minimal.
Lubricants -- Results from Sun's Lubricants business increased $9 million
from the 1993 third quarter. Income from sales of lubricant products was
$19 million in the current quarter, an increase of $10 million from the
year-ago quarter. The improvement was due to 16 percent higher sales
volumes ($15 million), particularly for base oils, partially offset by
lower margins ($2 million). Lubes production at Sun's Tulsa and Puerto
Rico refineries averaged 20,700 barrels a day, an increase of nearly 60
percent from the 1993 third quarter, when there was a scheduled maintenance
shutdown at Puerto Rico. Losses from Related Fuels operations were $10
million during the third quarter of 1994, representing a $1 million
increase in the 1993 third quarter loss of $9 million. A decline in
margins on middle distillates was largely offset by improved refinery
operations at Sun's Puerto Rico and Tulsa refineries.
Chemicals -- Sun's domestic Chemicals business earned $10 million in the
1994 third quarter, compared with income of $3 million in the third quarter
of 1993. Higher aromatics and propylene margins ($8 million) were
partially offset by lower sales volumes ($3 million) and higher operating
expenses ($3 million). New chemicals production resulting from the
acquisition of the Girard Point refinery also contributed $4 million to the
improved earnings.
<PAGE>
<PAGE> 22
Logistics -- Logistics income was $12 million, an increase of $2 million
versus the year-ago quarter, due principally to improved operating
performance.
International Production -- International Production earnings were $16
million in the current quarter versus $19 million in the third quarter of
1993. The $3 million decline in earnings was due largely to lower natural
gas prices and volumes ($2 million), the absence of certain tax benefits
recorded in the prior year third quarter ($5 million) and an increase in
after-tax foreign exchange translation losses ($2 million). Partially
offsetting these negative factors were a $2 million after-tax gain from the
redetermination of the Pickerill field in the U.K. North Sea and $2 million
of after-tax income from the Ninian field recognized in the third quarter
of 1994.
The average price received for Sun's international crude oil production was
$16.96 per barrel in the third quarter of 1994 compared to $16.89 per
barrel for the third quarter of 1993. Sun's average net production of
crude oil was 29.9 thousand barrels daily during the third quarter of 1994
compared to average net production of 25.2 thousand barrels daily for the
third quarter of 1993. This increase reflects the added production from
the Ninian field which averaged approximately eight thousand net barrels
daily during the quarter. When fully developed, production from the
acquired block is expected to exceed 11 thousand net barrels of crude oil
per day. Production declines at the Balmoral field due to scheduled
maintenance partially offset the added volumes associated with the Ninian
field.
The average price received for Sun's international natural gas production
was $3.16 per thousand cubic feet for the current quarter compared to $3.67
per thousand cubic feet in the 1993 third quarter. Sun's average net
production of natural gas was 31 million cubic feet daily in the current
quarter of 1994 compared to 35 million cubic feet daily in the third
quarter of 1993.
Canada (Suncor) -- Canadian exploration and production results decreased $1
million, as higher income tax expense ($2 million) was partially offset by
an increase in natural gas production volumes ($1 million). Oil sands
results increased $1 million as the impact of higher synthetic crude oil
prices ($3 million) and production volumes ($2 million) was largely offset
by the absence of a $3 million after-tax gain from an insurance settlement
received in the third quarter of 1993. Synthetic crude oil production
volumes increased 2 percent to 72.7 thousand barrels daily during the third
quarter of 1994. Canadian refining and marketing income decreased $1
million, as higher refined product sales volumes ($1 million) were more
than offset by increased administrative ($1 million) and tax ($1 million)
expenses.
Income from Operations Held for Sale -- For a discussion of Sun's coal and
real estate operations held for sale, see Note 4 to the condensed
consolidated financial statements.
Gain on Divestment of Exploration and Production Properties -- During the
third quarter of 1994, Sun disposed of its interest in U.K. North Sea
exploration Block 16/12a which resulted in an after-tax gain of $15
million, or $.14 per share of common stock. During the third quarter of
<PAGE>
<PAGE> 23
1993, Sun completed the sales of certain exploration properties in the U.K.
North Sea and crude oil producing properties in Canada. In connection with
these sales, Sun recognized an after-tax gain of $65 million, or $.61 per
share of common stock.
Provision for Write-down of Assets and Other Matters -- See "Analysis of
Earnings Profile of Sun Businesses - Provision for Write-down of Assets and
Other Matters" under "Results of Operations - Nine Months" for a discussion
of the $22 and $12 million after-tax provisions for write-down of assets
and other matters recorded in the third quarters of 1994 and 1993,
respectively.
Analysis of Consolidated Statements of Income
- ---------------------------------------------
Sales and other operating revenue increased $426 million, or 19 percent,
principally due to higher refined product sales volumes ($251 million) and
prices ($55 million), an increase in consumer excise taxes ($72 million)
and higher revenues from resales of purchased oil and refined products ($26
million). The $67 million decrease in gain on divestments is primarily due
to the absence of a pretax gain recognized in 1993 on the sale of certain
exploration blocks in the U.K. North Sea ($80 million), partially offset by
a pretax gain recognized in 1994 on the sale of exploration Block 16/12a in
the U.K. North Sea ($15 million). Other income decreased $18 million in
part due to the absence of various insurance and litigation settlements
recorded by Suncor in the 1993 third quarter.
Cost of products sold and operating expenses increased $329 million, or 24
percent, primarily due to higher domestic crude oil and refined product
acquisition costs ($264 million), higher refinery operating expenses ($27
million) and higher resales of purchased oil and refined products ($23
million). The increase in product acquisition costs and refinery operating
expenses was primarily attributable to the acquisition of the Girard Point
refinery on August 4, 1994. Selling, general and administrative expenses
increased $16 million, or 10 percent, primarily due to higher expenses in
Sun's domestic refining and marketing operations ($18 million). Taxes,
other than income taxes increased $82 million, or 16 percent, primarily due
to higher consumer excise taxes ($72 million). Interest cost and debt
expense increased $6 million, or 32 percent, due to higher average short-
term borrowings.<PAGE>
PAGE> 24
FINANCIAL CONDITION
Cash and Working Capital
- ------------------------
At September 30, 1994, Sun had cash and cash equivalents of $142 million
compared to $118 million at December 31, 1993 and had a working capital
deficit of $265 million versus a working capital deficit of $228 million at
December 31, 1993. Sun's working capital position is considerably stronger
than indicated because of the relatively low historical costs assigned
under the LIFO method of accounting to a significant portion of the
inventories reflected in the condensed consolidated balance sheet. The
current replacement cost of all such inventories exceeds the carrying value
at September 30, 1994, by approximately $425 million. Inventories valued
at LIFO, which consist of crude oil and refined products, are readily
marketable at their current replacement values. Management believes that
the current levels of Sun's cash and working capital provide adequate
support for its ongoing operations.
Cash Generation and Financial Capacity
- --------------------------------------
In the first nine months of 1994, Sun's net cash provided by operating
activities ("cash generation") was $85 million compared to $168 million in
the first nine months of 1993. The $83 million decrease in cash generation
is largely due to a $50 million decline in income before special items and
a $44 million increase in working capital uses pertaining to operating
activities. Divestment activities also have enhanced Sun's cash flow and
liquidity. During the first nine months of 1994 and 1993, proceeds from
divestments totalled $65 and $317 million, respectively.
Management believes that cash generation will be sufficient to satisfy
Sun's future ongoing cash requirements to sustain the current cash
dividend, pursue its capital program and fulfill its financing obligations.
However, from time to time, the Company's short-term cash requirements may
exceed its cash generation due to various factors including volatility in
crude and refined product markets and increases in capital spending and
working capital levels. During those periods, the Company may supplement
its cash generation with proceeds from divestment and financing activities.
In addition, Sun's capital spending levels may be adjusted in response to
changes in cash generation as a portion of capital spending is
discretionary in nature.
In the event that cash generation is insufficient to satisfy near-term cash
requirements, the Company has access to $500 million of short-term
financing for operations in the form of commercial paper and revolving
credit agreements from commercial banks. The Company also has access to
short-term financing under non-committed money market facilities and a $50
million confirmed line of credit. In addition, Suncor has a revolving term
credit facility available for its own use aggregating $298 million. <PAGE>
<PAGE> 25
The following table sets forth Sun's total borrowings (in millions of
dollars) at:
September 30, December 31,
1994 1993
------------- ------------
Short-term borrowings:
Commercial paper $ 200 $ 50
Confirmed line of credit 50 --
Non-committed money
market facilities 180 60
------ ----
430 110
------ ----
Current portion of
long-term debt 99 26
------ ----
Long-term debt:
Commercial paper 250* --
Suncor revolving term credit 3 91
Other 731 635
------ ----
984 726
------ ----
Total borrowings $1,513 $862
====== ====
- ----------------
*On November 1, 1994, the Company issued $150 million of 8-1/8 percent 5-
year notes and $100 million of 9 percent 30-year debentures. The proceeds
from these borrowings will be used to repay commercial paper as it
matures. Accordingly, $250 million of commercial paper was classified as
long-term debt at September 30, 1994.
The $651 million increase in total borrowings was largely used to fund a
portion of Sun's significant capital program ($669 million) and the
increase in inventory levels during the first nine months of 1994. Sun
expects to reduce its inventory levels during the fourth quarter of 1994.
During the third quarter of 1994, Standard and Poor's Corp. downgraded its
long-term debt rating of the Company and its subsidiaries from A- to BBB+.
As of September 30, 1994, Sun's long-term debt to long-term capitalization
ratio was 33.8 percent. As indicated by this ratio, management believes
that Sun has substantial long-term borrowing capacity which is available to
pursue strategic and other operational investment opportunities as they
arise.
<PAGE>
<PAGE> 26
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
On March 11, 1994, Sun was advised by the Department of Justice,
Environmental Enforcement Division ("DOJ") and the United States
Environmental Protection Agency ("EPA") that they contemplated the
filing of two lawsuits against Sun Company, Inc. (R&M) ("Sun(R&M)"),
and a single suit against Atlantic Refining & Marketing Corp.
("Atlantic"), both wholly owned subsidiaries of the Company. The
threatened action against both Sun(R&M) and Atlantic involved certain
alleged violations of a National Pollution Discharge Elimination
System ("NPDES") Permit at Sun's Philadelphia refinery. The second
threatened action, against Sun(R&M) only, involved certain alleged
violations of federal pre-treatment regulations under the Clean Water
Act. Sun has agreed with the DOJ and the EPA to settle these
allegations, and has entered into Consent Decrees which include the
payment of a total of $2.31 million paid into escrow with the United
States District Court of Pennsylvania, to settle civil liability and
an undertaking to make certain modifications to upgrade waste water
treatment at both the Marcus Hook and Philadelphia Refineries.
However, final settlement of these claims is pending the EPA's receipt
and consideration of public comment.
Many other legal and administrative proceedings are pending against
Sun. Although the ultimate outcome of these proceedings cannot be
ascertained at this time, it is reasonably possible that some of them
could be resolved unfavorably to Sun. Management of Sun believes that
any liabilities which may arise from such proceedings, including those
discussed above, would not be material in relation to the consolidated
financial position of Sun at September 30, 1994.
Item 6. Exhibits and Reports on Form 8-K
Exhibits:
11 - Statements re Sun Company, Inc. and Subsidiaries Computation of
Per Share Earnings for the Nine-Month and Three-Month Periods
Ended September 30, 1994 and 1993.
12 - Statement re Sun Company, Inc. and Subsidiaries Computation of
Ratio of Earnings to Fixed Charges for the Nine-Month Period
Ended September 30, 1994.
Reports on Form 8-K:
The Company did not file any reports on Form 8-K during the quarter
ended September 30, 1994.
A report on Form 8-K dated October 24, 1994 was filed to disclose
under Item 5, "Other Events," the Company's press release discussing
earnings for the period ended September 30, 1994.
<PAGE>
<PAGE> 27
We are pleased to furnish this report to shareholders who request it by
writing to:
Sun Company, Inc.
Shareholder Relations
Ten Penn Center
1801 Market Street
Philadelphia, PA 19103-1699
<PAGE>
<PAGE> 28
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
SUN COMPANY, INC.
BY s/ RICHARD L. CARTLIDGE
-----------------------
Richard L. Cartlidge
Comptroller
(Principal Accounting Officer)
DATE November 2, 1994
<PAGE>
<PAGE> 1
EXHIBIT INDEX
Exhibit
Number Exhibit
- ------- -----------------------------------------
11 Statements re Sun Company, Inc. and Subsidiaries Computation
of Per Share Earnings for the Nine-Month and Three-Month
Periods Ended September 30, 1994 and 1993.
12 Statement re Sun Company, Inc. and Subsidiaries Computation
of Ratio of Earnings to Fixed Charges for the Nine-Month
Period Ended September 30, 1994.
27 Article 5 of Regulation S-X, Financial Data Schedule.
<PAGE>
<PAGE> 1
EXHIBIT 11
STATEMENTS RE COMPUTATION OF PER SHARE EARNINGS
Sun Company, Inc. and Subsidiaries
(Dollars in Millions Except Per Share Amounts, Shares in Thousands)
- -------------------------------------------------------------------------
For the Nine Months
Ended September 30
-------------------
1994 1993
------- -------
(UNAUDITED)
Income before cumulative effect of change
in accounting principle (1) $94.0 $219.0
Cumulative effect of change in
accounting principle (2) (6.8)(a) 5.0(a)
----- ------
Net income (3) $87.2 $224.0
===== ======
Weighted average number of shares
of common stock and common stock
equivalents outstanding (4) 107,066 106,497
======= =======
Income per share of common stock:
Income before cumulative effect of change
in accounting principle (1)/(4) $ .88 $2.05
Cumulative effect of change in
accounting principle (2)/(4) (.07) .05
----- -----
Net income (3)/(4) $ .81 $2.10
===== =====
Weighted average number of shares of
common stock and common stock
equivalents outstanding on a
fully diluted basis (5) 107,080 106,505
======= =======
Income per share of common stock
on a fully diluted basis:
Income before cumulative effect of change
in accounting principle (1)/(5) $ .88 $2.05
Cumulative effect of change in
accounting principle (2)/(5) (.07) .05
----- -----
Net income (3)/(5) $ .81 $2.10
===== =====
- ----------------
(a) Includes impact of the cumulative effect of a change in the method of
accounting for postemployment benefits in 1994 and a change in the
method of accounting for income taxes in 1993. (See Note 7 to the
condensed consolidated financial statements.)
<PAGE>
<PAGE> 2
EXHIBIT 11
STATEMENTS RE COMPUTATION OF PER SHARE EARNINGS
Sun Company, Inc. and Subsidiaries
(Dollars in Millions Except Per Share Amounts, Shares in Thousands)
- -------------------------------------------------------------------------
For the Three Months
Ended September 30
--------------------
1994 1993
------- -------
(UNAUDITED)
Net income (1) $48.4 $113.8
===== ======
Weighted average number of shares
of common stock and common stock
equivalents outstanding (2) 106,958 106,553
======= =======
Net income per share of common stock (1)/(2) $.45 $1.07
==== ====
Weighted average number of shares of
common stock and common stock
equivalents outstanding on a
fully diluted basis (3) 106,993 106,576
======= =======
Net income per share of common stock
on a fully diluted basis (1)/(3) $.45 $1.07
==== ====
<PAGE>
<PAGE> 1
EXHIBIT 12
STATEMENT RE COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES(a)
Sun Company, Inc. and Subsidiaries
(Millions of Dollars Except Ratio)
- --------------------------------------------------------------------------
For the Nine Months
Ended September 30, 1994
-------------------------
(UNAUDITED)
Fixed Charges:
Consolidated interest cost and debt expense $ 66
Interest cost and debt expense of operations
held for sale 18
Interest allocable to rental expense(b) 17
----
Total $101
====
Earnings:
Consolidated income before provision for
income taxes and cumulative effect of
change in accounting principle $123
Minority interest in net income
of subsidiaries having fixed charges 24
Proportionate share of provision for income
taxes of 50 percent owned but not controlled
affiliated companies 3
Equity in income of less than 50 percent owned
but not controlled affiliated companies (5)
Dividends received from less than 50 percent
owned but not controlled affiliated companies 3
Fixed charges 101
Interest capitalized (10)
Amortization of previously capitalized interest 26
----
Total $265
====
Ratio of Earnings to Fixed Charges 2.62
====
- ----------------
(a) The consolidated financial statements of Sun Company, Inc. and
subsidiaries contain the accounts of all subsidiaries that are
controlled (generally more than 50 percent owned) except those engaged
in coal and real estate operations which are subject to a plan of
disposition. Coal and real estate operations are accounted for as
investments in operations held for sale. (See Note 4 to the condensed
consolidated financial statements.) Affiliated companies (20 to 50
percent owned but not controlled) are accounted for by the equity
method.
(b) Represents one-third of total operating lease rental expense which is
that portion deemed to be interest.
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> SEP-30-1994
<CASH> 142
<SECURITIES> 0
<RECEIVABLES> 732
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<INVENTORY> 778
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0
<OTHER-SE> 1,796
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